How are people
compensated?
7 questions
#1
How openly is
information about
wages shared?
People working for Semco have access to information
about the companys’ revenues and costs – including
wages of everyone who works for the company.
Source:
Interview with Mr. Ricardo Semler.
http://www.youtube.com/watch?v=gJkOPxJCN1w
Results of study show that if all of our salaries were
made known tomorrow,
people with low wages may leave, and
people with high wages do not become more loyal.
Source:
Results of study by researchers at the University of California at Berkeley and Princeton University
http://www.smartmoney.com/personal-finance/employment/why-companies-keep-pay-a-secret/
#2
Who decides who
is paid how much?
A possibility is to let each person in a group
assign a percentage of the total compensation
budget to all the others.
The average of these numbers then determines
each person’s actual compensation.
Source: Malone, Thomas W.: The Future of Work, p. 67.
The energy company AES has tested a system that
sets salaries through peer review.
In the experiment, each person sent a proposed
salary for himself or herself to everyone else in
the group.
Source: Malone, Thomas W.: The Future of Work, p. 67.
It's interesting that the people most involved
with compensation planning are the people
least involved in innovation efforts.
Source:
Jeffrey Phillips.
http://innovateonpurpose.blogspot.com/2010/07/why-compensation-models-work-against.html
#3
To what extent
does pay follow
performance?
Source
Daniel Vasella
http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/McKinsey_conversations_with_global_leaders_Dan_Vasella_of_Novartis_2401
I don’t agree that CEO compensation should be linked to
share prices, because too many different variables can
affect the stock price.
For example, it is very important for us to reduce our
carbon footprint dramatically. In the short term, however,
the market won’t understand.
Source:
Interview with Vineet Nayar. http://www.strategy-business.com/article/10410?pg=all
Culture A Culture B
Pay follows performance Pays does not follow
When performance goes up, performance
pay goes up. Pay stays the same – no
When performance goes matter how performance is.
down, pays goes down.
Source:
Interview with Ms. Robin A. Ferracone.
http://video.forbes.com/fvn/bizviz/fair-executive-pay
#4
To what extent do
goals help create
maximum value for
the most people?
”To engender change among people in an organization,
it’s important to keep attention focused on the desired
end state, not on avoiding problems.
This goal-directed positive reinforcement must take
place over and over.
The most effective way to achieve this is to set up
practices and processes that make it easy for people
to do the right thing..”
Source: http://www.strategy-business.com/article/11109?pg=all
The irony, says Schweitzer, is that a lot of this specific
goal setting is unnecessary. Research has shown that
employees have a stronger intrinsic motivation to
do a good job than their managers tend to give
them credit for.
He points to research by Stanford University
organizational behavior expert Chip Heath, who "found
that people tend to think that other people need
extrinsic rewards more often than they really do.... To
us, our work is interesting and meaningful, but we tend
to think that other people come to work because of
money."
Source: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2162
As goal setting increases extrinsic motivation, it
can harm intrinsic motivation – engaging in a task
for its own sake (Mossholder, 1980; Rawsthorne &
Elliot, 1999; Shalley & Oldham, 1985).
This is true of rewards in general (Deci, Koestner, &
Ryan, 1999), but several studies demonstrate that this
is particularly true for goals themselves (Elliot &
Harackiewicz, 1996; Rawsthorne & Elliot, 1999).
Source
Ordóñez, Lisa D.; Schweitzer, Maurice E.; Galinsky, Adam D.; Bazerman, Max H.:
”Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”
http://www.hbs.edu/research/pdf/09-083.pdf
“..being too focused on achieving a specific goal
may decrease extra-role behavior, such as
helping coworkers (Wright, George, Farnsworth,
& McMahan, 1993).
Goals may promote competition rather than
cooperation and ultimately lower overall
performance (Mitchell & Silver, 1990).”
Source
Ordóñez, Lisa D.; Schweitzer, Maurice E.; Galinsky, Adam D.; Bazerman, Max H.:
”Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”
http://www.hbs.edu/research/pdf/09-083.pdf
An individual who is narrowly focused on a performance
goal, will be less likely to try alternative methods that
could help her learn how to perform a task.
As an example of this phenomenon, Locke and Latham
(2002) describe an air traffic controller simulation in
which the performance goal interfered with learning in
this complex domain (Kanfer & Ackerman, 1989).
Overall, the narrow focus of specific goals can
inspire performance but prevent learning.
Source
Ordóñez, Lisa D.; Schweitzer, Maurice E.; Galinsky, Adam D.; Bazerman, Max H.:
”Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”
http://www.hbs.edu/research/pdf/09-083.pdf
Sears set sales goals for its auto repair staff of
$147/hour. This specific, challenging goal prompted
staff to overcharge for work and to complete
unnecessary repairs on a companywide basis.
Ultimately, Sears’ Chairman Edward Brennan
acknowledged that goal setting had motivated Sears’
employees to deceive customers.
Source
Ordóñez, Lisa D.; Schweitzer, Maurice E.; Galinsky, Adam D.; Bazerman, Max H.:
”Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”
http://www.hbs.edu/research/pdf/09-083.pdf
Setting goals is an effective method to track
achievement.
But too much emphasis on performance goals
may encourage unethical or unnecessarily
risky behavior.
Source: http://www.strategy-business.com/re/recentresearch/re00064
Source
Ordóñez, Lisa D.; Schweitzer, Maurice E.; Galinsky, Adam D.; Bazerman, Max H.:
”Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”
http://www.hbs.edu/research/pdf/09-083.pdf
Cheng, Subramanyam, and Zhang (2005) showed that
firms that frequently issue quarterly earnings reports,
compared to firms that report earnings less frequently,
tended to meet or beat analyst expectations, but also
tended to invest less in research and development.
The effort to meet short-term targets occurred at the
expense of long-term growth. Some companies are
learning from these mistakes; Coca Cola announced in
2002 that is would cease issuing quarterly earnings
guidance and provide more information about progress
on meeting long-term objectives.
Source
Ordóñez, Lisa D.; Schweitzer, Maurice E.; Galinsky, Adam D.; Bazerman, Max H.:
”Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting.”
http://www.hbs.edu/research/pdf/09-083.pdf
If you start to give quarterly profit figures, the
organization will start to think in quarterly terms.
Mr. Peter Brabeck
Source: http://bigthink.com/ideas/19020
#5
To what extent
should bonus pay
be used
Source: http://www.ted.com/talks/dan_pink_on_motivation.html
Wenn man die Boni zur Motivation braucht,
fördert das eine schädliche Entwicklung für
das Unternehmen.
Harald Krüger
BMW-Personalvorstand
Source
http://www.faz.net/artikel/C31151/bmw-personalvorstand-unsere-leute-
brauchen-keine-karotte-30029080.html
According to study done in New York,
paying teachers a bonus did not improve
student outcomes.
Source
http://blogs.ajc.com/get-schooled-blog/2011/07/18/new-study-finds-performance-pay-had-no-
positive-effects-on-student-achievement-at-any-grade-level/
Alfie Kohn: ”The more you reward students for doing
something, the more they tend to lose interest”
Source:
http://www.youtube.com/watch?v=EQt-ZI58wpw
http://www.alfiekohn.org/teaching/tcooa.htm
Harvard University Professor Roland Fryer, Jr. has
conducted large-scale studies paying students for
reading, grades, various behaviors, and test scores.
The results indicated positive outcomes, especially
for paying students to learn specific skills.
Source: http://www.psychologytoday.com/blog/who-we-are/201005/motivating-students-learn
#6
To what extent
should people be
paid to think
creatively?
Initiative, creativity, and passion, that
create wealth in the creative economy,
cannot be commanded
Source: Gary Hamel. http://bigthink.com/garyhamel/the-problem-with-employees
Edward Deci has found that money - like other tangible
rewards - does not work very well to motivate people
over the long term, particularly for tasks that involve
creativity.
In fact, there is a lot of evidence that rewards can have
the perverse effect of making people perform worse.
Source
http://www.time.com/time/nation/article/0,8599,1978589-2,00.html#ixzz0krFBzRx8
3 factors lead to better performance
and personal satisfaction:
# 1: Purpose
What is meaningful.
# 2: Mastery
The urge to get better.
# 3: Autonomy
The desire to be self directed.
Source:
Daniel Pink. http://www.youtube.com/watch?v=u6XAPnuFjJc
Source: Osterloh, Margrit & Frey, Bruno S.: ”Succesful Management by Motivation”, p. 9.
The desire to do something because you find it
deeply satisfying and personally challenging
inspires the highest levels of creativity, whether
it's in the arts, sciences, or business.
Source
Teresa Amabile. http://hbswk.hbs.edu/item/5902.html
Die tiefe Überzeugung etwas besser zu
können als andere – und der unbeugsame
Wille, das zu beweisen.
Für die meisten Innovatoren ist das mit
Abstand die stärkste Triebkraft.
Source
Fredmund Malik: Was Unternehmer antreibt.
http://www.bilanz.ch/edition/artikel.asp?AssetID=7410
#7
To what extent are
people praised for
trying out
something new?
Non-financial incentives are more
effective than financial incentives
Source: http://www.mckinseyquarterly.com/Motivating_people_Getting_beyond_money_2460
The perception of status increases significantly
whenever people are given credible informal
praise for daily tasks rather than waiting for
annual results.
Sources
http://www.forbes.com/2010/04/06/money-motivation-pay-leadership-managing-employees.html
http://www.pixelio.de/details.php?image_id=280873&mode=search
Praise people more for their effort
than for their intelligence
Source: http://www.youtube.com/watch?v=HhxcFGuKOys minute 9.
We found that employees having an opportunity to put
forward their ideas brought huge personal rewards.
We learned very clearly through our experiment that
financial rewards would not have made any difference.
People reported that recognition of their ideas was a
reward in itself. They wanted to be engaged and to
participate. We therefore involved people in presenting
their ideas to senior management.”
Source: http://sloanreview.mit.edu/the-magazine/2011-winter/52210/the-5-myths-of-innovation/
At your next department meeting see if you
can find someone to praise for:
Coming up with some great ideas.
Trying something new.
Challenging the conventional way of thinking.
Bringing an external idea into the company.
Collaborating with a different department or
organisation.
Taking a risk.
Making something happen.
Source:
Paul Sloane.
http://www.bqf.org.uk/innovation/2010/04/06/praise-the-behaviours-you-want-to-see/